CommonWealth REIT Announces 2012 Third Quarter Results

  CommonWealth REIT Announces 2012 Third Quarter Results

Business Wire

NEWTON, Mass. -- November 07, 2012

CommonWealth REIT (NYSE: CWH) today announced financial results for the
quarter and nine months ended September 30, 2012.

Results for the Quarter Ended September 30, 2012:

Normalized funds from operations, or Normalized FFO, available for
CommonWealth REIT common shareholders for the quarter ended September 30, 2012
was $69.3 million, or $0.83 per share basic and diluted, compared to
Normalized FFO available for CommonWealth REIT common shareholders for the
quarter ended September 30, 2011 of $70.0 million, or $0.86 per share basic
and diluted.

Net (loss) income available for CommonWealth REIT common shareholders was
($122,000) for the quarter ended September 30, 2012, compared to $14.7 million
for the same quarter last year. Net (loss) income available for CommonWealth
REIT common shareholders per share, basic and diluted (EPS), for the quarters
ended September 30, 2012 and 2011 was $0.00 and $0.18, respectively. Net
income for the quarter ended September 30, 2012 includes a gain of $1.7
million, or $0.02 per share, on the sale of properties. Net income for the
quarter ended September 30, 2011 includes gains of $7.0 million, or $0.09 per
share, on the sale of properties and $11.2 million, or $0.14 per share, from
the issuance of shares by an equity investee, partially offset by a loss on
asset impairment of $9.2 million, or $0.11 per share.

The weighted average number of basic and diluted common shares outstanding was
83,745,315 and 91,043,480, respectively, for the quarter ended September 30,
2012, and 81,535,596 and 88,833,761, respectively, for the quarter ended
September 30, 2011.

A reconciliation of net income attributable to CommonWealth REIT, determined
according to U.S. generally accepted accounting principles, or GAAP, to funds
from operations, or FFO, available for CommonWealth REIT common shareholders
and Normalized FFO available for CommonWealth REIT common shareholders for the
quarters ended September 30, 2012 and 2011 appears below in this press
release.

Results for the Nine Months Ended September 30, 2012:

Normalized FFO available for CommonWealth REIT common shareholders for the
nine months ended September 30, 2012 was $215.1 million, or $2.57 per share
basic and diluted, compared to Normalized FFO available for CommonWealth REIT
common shareholders for the nine months ended September 30, 2011 of $197.8
million, or $2.63 per share basic and $2.62 per share diluted.

Net income available for CommonWealth REIT common shareholders was $12.0
million for the nine months ended September 30, 2012, compared to $61.9
million for the same period last year. Net income available for CommonWealth
REIT common shareholders per share, basic and diluted (EPS), for the nine
months ended September 30, 2012 and 2011 was $0.14 and $0.82, respectively.
Net income for the nine months ended September 30, 2012 includes gains of $2.0
million, or $0.02 per share, on the sale of properties. Net income for the
nine months ended September 30, 2011 includes gains of $41.6 million, or $0.55
per share, from the sale of properties and $11.2 million, or $0.15 per share,
from the issuance of shares by an equity investee, partially offset by a loss
on asset impairment of $9.2 million, or $0.12 per share.

The weighted average number of basic and diluted common shares outstanding was
83,731,371 and 91,029,536, respectively, for the nine months ended September
30, 2012, and 75,307,315 and 82,605,480, respectively, for the nine months
ended September 30, 2011.

A reconciliation of net income attributable to CommonWealth REIT determined
according to GAAP to FFO available for CommonWealth REIT common shareholders
and Normalized FFO available for CommonWealth REIT common shareholders for the
nine months ended September 30, 2012 and 2011 appears below in this press
release.

Occupancy and Leasing Results:

As of September 30, 2012, 84.5% of CWH’s total square feet was leased,
compared to 84.1% as of September 30, 2011.

CWH entered into lease renewals for 942,000 square feet and new leases for
385,000 square feet during the quarter ended September 30, 2012 which had
weighted average rental rates that were 2% below prior rents for the same
space. Average lease terms for leases entered into during the third quarter of
2012 were 6.0 years. Commitments for tenant improvements, leasing commission
costs and concessions for leases entered during the quarter ended September
30, 2012 totaled $2.13 per square foot per year of lease term on average.

Recent Acquisition and Sales Activities:

Since the announcement of 2012 second quarter results on August 8, 2012, CWH
(excluding Select Income REIT, or SIR) has acquired three previously disclosed
central business district, or CBD, office properties with a combined 1.4
million square feet for an aggregate purchase price of $255.5 million,
including the assumption of $156.3 million of mortgage debt and excluding
closing costs. These three CBD office properties are located in Columbia, SC
and Indianapolis, IN.

In addition, since August 8, 2012, CWH (excluding SIR) has sold one vacant
suburban office property with approximately 209,000 square feet located in
Foxborough, MA for $9.9 million, excluding closing costs.

Recent Financing Activities:

In July 2012, CWH issued $175.0 million of 5.75% unsecured senior notes due in
2042, raising net proceeds of $169.0 million. CWH used the net proceeds from
these notes to redeem in August 2012 all 6,000,000 shares of its 7 1/8% series
C preferred stock for par plus accrued and unpaid distributions (approximately
$150.0 million), and used any excess proceeds to partially fund the
acquisitions listed above.

Also in July 2012, CWH prepaid at par all $191.0 million of its 6.50%
unsecured senior notes due in 2013, using cash on hand and borrowings under
its revolving credit facility.

Presentation:

Unless otherwise noted, the amounts reported above are on a consolidated basis
and, as such, include the results of CWH’s consolidated subsidiary, SIR,
including the effect of SIR’s minority interests since March 2012, when SIR
became a separate publicly traded company.

SIR is itself a public company having common shares registered under the
Securities Exchange Act of 1934, as amended. For further information about SIR
and its subsidiaries, please see SIR’s periodic reports and other filings with
the Securities and Exchange Commission, or SEC, which are available at the
SEC’s website at www.sec.gov. References in this press release to SIR’s
filings with the SEC are included to identify the source of SIR information
only, and the information in SIR’s filings with the SEC is not incorporated by
reference into this press release.

Conference Call:

Later today, at 10:00 a.m. Eastern Time, Adam Portnoy, President and Managing
Trustee, and John Popeo, Chief Financial Officer, will host a conference call
to discuss the financial results for the quarter ended September 30, 2012.

The conference call telephone number is (800) 288-8961. Participants calling
from outside the United States and Canada should dial (612) 332-0335. No pass
code is necessary to access either call. Participants should dial in about 15
minutes prior to the scheduled start of the call. A replay of the conference
call will be available through 11:59 p.m. Eastern Time on Wednesday, November
14, 2012. To hear the replay, dial (320) 365-3844. The replay pass code is
260119.

A live audio webcast of the conference call will also be available in a listen
only mode on CWH’s website, which is located at www.cwhreit.com. Participants
wanting to access the webcast should visit CWH’s website about five minutes
before the call. The archived webcast will be available for replay on CWH’s
website for about one week after the call.

The recording and retransmission in any way of CWH’s third quarter conference
call is strictly prohibited without the prior written consent of CWH.

Supplemental Data:

A copy of CWH’s Third Quarter 2012 Supplemental Operating and Financial Data
is available for download at CWH’s website, www.cwhreit.com. CWH’s website is
not incorporated as part of this press release.

CommonWealth REIT is a real estate investment trust which primarily owns
office properties located throughout the United States. CWH is headquartered
in Newton, MA.

Please see the pages attached hereto for a more detailed statement of our
operating results and financial condition and for an explanation of our
calculation of FFO and Normalized FFO.

CommonWealth REIT
Condensed Consolidated Statements of Income, Funds from Operations and
Normalized Funds from Operations
(amounts in thousands)
(unaudited)
                                                           
                   Quarter Ended September 30,     Nine Months Ended September
                                                   30,
                   2012            2011            2012             2011
                                                                      
Rental income      $ 261,661      $ 241,785      $ 768,281       $ 670,396  
                                                                      
Expenses:
Operating            112,577         104,683         324,760          285,703
expenses
Depreciation
and                  63,437          56,389          188,340          159,072
amortization
General and          14,592          11,692          40,266           34,275
administrative
Loss on asset        -               9,247           -                9,247
impairment
Acquisition         1,066         4,805         5,002          9,722    
related costs
Total expenses      191,672       186,816       558,368        498,019  
                                                                      
Operating            69,989          54,969          209,913          172,377
income
                                                                      
Interest and         399             320             1,100            1,395
other income
Interest
expense
(including net
amortization
of debt
discounts,
premiums          (51,138 )       (49,423 )       (150,481 )       (145,037 )
and deferred
financing fees
of $1,001,
$1,515,
$2,752 and
$5,467,
respectively)
(Loss) gain on
early                (220    )       310             (1,895   )       310
extinguishment
of debt
Equity in
earnings of          2,868           2,768           8,655            8,390
investees
Gain on
issuance of
shares by an        -             11,177        -              11,177   
equity
investee
Income from
continuing
operations           21,898          20,121          67,292           48,612
before income
tax expense
Income tax          (1,322  )      (307    )      (1,906   )      (743     )
expense
Income from
continuing           20,576          19,814          65,386           47,869
operations
Discontinued
operations:
Income from
discontinued         -               1,720           -                5,669
operations
Net gain on
sale of
properties          -             7,001         -              41,573   
from
discontinued
operations
Income before
gain on sale         20,576          28,535          65,386           95,111
of properties
Gain on sale        1,689         -             2,039          -        
of properties
Net income           22,265          28,535          67,425           95,111
Net income
attributable
to                  (4,647  )      -             (10,062  )      -        
noncontrolling
interest
Net income
attributable
to                   17,618          28,535          57,363           95,111
CommonWealth
REIT
Preferred            (12,755 )       (13,823 )       (40,401  )       (33,162  )
distributions
Excess
redemption
price paid
over carrying       (4,985  )      -             (4,985   )      -        
value of
preferred
shares
Net (loss)
income
available for      $ (122    )     $ 14,712       $ 11,977        $ 61,949   
CommonWealth
REIT common
shareholders
                                                                      
                                                                      
Amounts
attributable
to
CommonWealth
REIT common
shareholders:
(Loss) income
from               $ (122    )     $ 5,991         $ 11,977         $ 14,707
continuing
operations
Income from
discontinued         -               1,720           -                5,669
operations
Net gain on
sale of
properties          -             7,001         -              41,573   
from
discontinued
operations
Net (loss)         $ (122    )     $ 14,712       $ 11,977        $ 61,949   
income
                                                                               

CommonWealth REIT
Condensed Consolidated Statements of Income, Funds from Operations and Normalized Funds
from Operations (continued)
(amounts in thousands, except per share data)
(unaudited)
                                                                 
                             Quarter Ended September 30,      Nine Months Ended September
                                                               30,
                             2012             2011           2012           2011      
Calculation of FFO:^(1)
Net income attributable        $ 17,618        $ 28,535        $ 57,363        $ 95,111
to CommonWealth REIT
          depreciation
          and
Plus:     amortization           63,437          56,389          188,340         159,072
          from
          continuing
          operations
          depreciation
          and
Plus:     amortization           -               1,336           -               4,467
          from
          discontinued
          operations
          loss on asset
          impairment
Plus:     from                   -               9,247           -               9,247
          continuing
          operations
Plus:     FFO from               5,472           4,918           16,070          14,476
          investees
          net income
          attributable
Plus:     to                     4,647           -               10,062          -
          noncontrolling
          interest
          FFO
          attributable
Less:     to                     (5,796  )       -               (12,270 )       -
          noncontrolling
          interest
Less:     gain on sale           (1,689  )       -               (2,039  )       -
          of properties
          net gain on
          sale of
Less:     properties             -               (7,001  )       -               (41,573 )
          from
          discontinued
          operations
          equity in
Less:     earnings of           (2,868  )      (2,768  )      (8,655  )      (8,390  )
          investees
FFO attributable to              80,821          90,656          248,871         232,410
CommonWealth REIT
Less:     preferred             (12,755 )      (13,823 )      (40,401 )      (33,162 )
          distributions
FFO available for
CommonWealth REIT common       $ 68,066       $ 76,833       $ 208,470      $ 199,248 
shareholders
                                                                                 
Calculation of
Normalized FFO:^(1)
FFO attributable to            $ 80,821        $ 90,656        $ 248,871       $ 232,410
CommonWealth REIT
          acquisition
          related costs
Plus:     from                   1,066           4,805           5,002           9,722
          continuing
          operations
          acquisition
          related costs
Plus:     from                   -               5               -               148
          discontinued
          operations
Plus:     normalized FFO         5,633           5,142           16,293          15,175
          from investees
          loss (gain) on
          early
Plus:     extinguishment         220             (310    )       1,895           (310    )
          of debt from
          continuing
          operations
          early
          extinguishment
Less:     of debt                -               (232    )       -               (232    )
          settled in
          cash
          average
          minimum rent
Plus:     from direct            329             329             987             768
          financing
          lease
          FFO
          attributable
Plus:     to                     5,796           -               12,270          -
          noncontrolling
          interest
          normalized FFO
          attributable
Less:     to                     (5,968  )       -               (12,641 )       -
          noncontrolling
          interest
Less:     FFO from               (5,472  )       (4,918  )       (16,070 )       (14,476 )
          investees
          interest
          earned from
Less:     direct                 (353    )       (432    )       (1,119  )       (1,036  )
          financing
          lease
          gain on
          issuance of
Less:     shares by an          -             (11,177 )      -             (11,177 )
          equity
          investee
Normalized FFO
attributable to                  82,072          83,868          255,488         230,992
CommonWealth REIT
Less:     preferred             (12,755 )      (13,823 )      (40,401 )      (33,162 )
          distributions
Normalized FFO available
for CommonWealth REIT          $ 69,317       $ 70,045       $ 215,087      $ 197,830 
common shareholders
                                                                                 
Weighted average common
shares outstanding –            83,745        81,536        83,731        75,307  
basic
                                                                                 
Weighted average common
shares outstanding –            91,043        88,834        91,029        82,605  
diluted^(2)
                                                                                 
Per common share:
   (Loss) income from
   continuing operations
   attributable to             $ -             $ 0.07          $ 0.14          $ 0.20
   CommonWealth REIT
   common shareholders –
   basic and diluted
   Income from
   discontinued
   operations
   attributable to             $ -             $ 0.11          $ -             $ 0.63
   CommonWealth REIT
   common shareholders –
   basic and diluted
   Net (loss) income
   available for
   CommonWealth REIT           $ -             $ 0.18          $ 0.14          $ 0.82
   common
   shareholders –
   basic and diluted
   FFO available for
   CommonWealth REIT
   common
   shareholders – basic        $ 0.81          $ 0.94          $ 2.49          $ 2.65
   FFO available for
   CommonWealth REIT
   common
   shareholders –              $ 0.81          $ 0.93          $ 2.49          $ 2.64
   diluted
   Normalized FFO
   available for
   CommonWealth REIT
   common
   shareholders – basic        $ 0.83          $ 0.86          $ 2.57          $ 2.63
   Normalized FFO
   available for
   CommonWealth REIT
   common
   shareholders –              $ 0.83          $ 0.86          $ 2.57          $ 2.62
   diluted
                                                                                         

                              CommonWealth REIT
    Condensed Consolidated Statements of Income, Funds from Operations and
                 Normalized Funds from Operations (continued)
                            (amounts in thousands)
                                 (unaudited)

(1) CWH calculates FFO and Normalized FFO as shown above. FFO is calculated on
the basis defined by The National Association of Real Estate Investment
Trusts, or NAREIT, which is net income, calculated in accordance with GAAP,
plus real estate depreciation and amortization, loss on asset impairment, net
income attributable to noncontrolling interest and FFO from equity investees,
less gain or loss on sale of properties, earnings from equity investees and
FFO attributable to noncontrolling interest. CWH’s calculation of Normalized
FFO differs from NAREIT's definition of FFO because it excludes acquisition
related costs, gains from issuance of shares by equity investees, gain and
loss on early extinguishment of debt unless settled in cash, the difference
between average minimum rent and interest earned from CWH’s direct financing
lease and the difference between FFO and Normalized FFO from equity investees
and noncontrolling interest. CWH considers FFO and Normalized FFO to be
appropriate measures of performance for a REIT, along with net income, net
income attributable to CommonWealth REIT, net income available for
CommonWealth REIT common shareholders, operating income and cash flow from
operating, investing and financing activities. CWH believes that FFO and
Normalized FFO provide useful information to investors because by excluding
the effects of certain historical amounts, such as depreciation expense, FFO
and Normalized FFO can facilitate a comparison of our operating performance
between periods. FFO and Normalized FFO are among the factors considered by
CWH’s Board of Trustees when determining the amount of distributions to
shareholders. Other factors include, but are not limited to, requirements to
maintain CWH’s status as a REIT, limitations in its credit facilities, term
loan agreements and public debt covenants, the availability of debt and equity
capital to CWH, CWH’s cash available for distribution, CWH’s expectation of
its future capital requirements and operating performance and CWH’s expected
needs and availability of cash to pay its obligations. FFO and Normalized FFO
do not represent cash generated by operating activities in accordance with
GAAP and should not be considered as alternatives to net income, net income
attributable to CommonWealth REIT, net income available for CommonWealth REIT
common shareholders, operating income or cash flow from operating activities,
determined in accordance with GAAP, or as indicators of CWH’s financial
performance or liquidity, nor are FFO and Normalized FFO necessarily
indicative of sufficient cash flow to fund all of CWH’s needs. CWH believes
FFO and Normalized FFO may facilitate an understanding of its consolidated
historical operating results. These measures should be considered in
conjunction with net income, net income attributable to CommonWealth REIT, net
income available for CommonWealth REIT common shareholders, operating income,
and cash flow from operating activities as presented in CWH’s Condensed
Consolidated Statements of Income and Condensed Consolidated Statements of
Cash Flows. Other REITs and real estate companies may calculate FFO and
Normalized FFO differently than CWH.

^(2) As of September 30, 2012, CWH’s 15,180 outstanding series D preferred
shares were convertible into 7,298 common shares. The effect of a conversion
of CWH’s series D convertible preferred shares on income from continuing
operations available for CommonWealth REIT common shareholders per share is
anti-dilutive to income, but dilutive to FFO and Normalized FFO for most
periods presented. Set forth below is the calculation of diluted net income
available for common shareholders, diluted FFO available for common
shareholders, diluted Normalized FFO available for common shareholders and
diluted weighted average common shares outstanding.

                  Quarter Ended September 30,   Nine Months Ended
                                                    September 30,
                    2012             2011         2012           2011
                                                                       
Net (loss)
income
available for       $  (122    )       $ 14,712     $  11,977        $ 61,949
CommonWealth
REIT common
shareholders
Add - Series D
convertible           6,167           6,167        18,501         18,501
preferred
distributions
Net income
available for
CommonWealth        $  6,045          $ 20,879     $  30,478        $ 80,450
REIT common
shareholders –
diluted
                                                                       
FFO available
for
CommonWealth        $  68,066          $ 76,833     $  208,470       $ 199,248
REIT common
shareholders
Add - Series D
convertible           6,167           6,167        18,501         18,501
preferred
distributions
FFO available
for
CommonWealth        $  74,233         $ 83,000     $  226,971       $ 217,749
REIT common
shareholders –
diluted
                                                                       
Normalized FFO
available for
CommonWealth        $  69,317          $ 70,045     $  215,087       $ 197,830
REIT common
shareholders
Add - Series D
convertible            6,167             6,167         18,501          18,501
preferred
distributions
Normalized FFO
available for                                                   
CommonWealth
REIT common
shareholders –      $  75,484         $ 76,212     $  233,588       $ 216,331
diluted
                                                                       
Weighted
average common
shares                 83,745            81,536        83,731          75,307
outstanding –
basic
Effect of
dilutive Series       7,298           7,298        7,298          7,298
D preferred
shares
Weighted
average common
shares                91,043          88,834       91,029         82,605
outstanding –
diluted
                                                                       

CommonWealth REIT
Condensed Consolidated Balance Sheets
(amounts in thousands, except share data)
(unaudited)
                                                      
                                  As of September 30,       As of December 31,
                                  2012                      2011
ASSETS                                                      
Real estate properties:
Land                              $   1,531,466             $   1,450,154
Buildings and improvements           6,331,605               5,794,078   
                                      7,863,071                 7,244,232
Accumulated depreciation             (1,045,477   )           (934,170    )
                                      6,817,594                 6,310,062
Acquired real estate leases,          371,929                   343,917
net
Equity investments                    178,996                   177,477
Cash and cash equivalents             72,680                    192,763
Restricted cash                       13,631                    7,869
Rents receivable, net of
allowance for doubtful
accounts of $11,798                   246,313                   217,592
and $12,575,
respectively
Other assets, net                    245,812                 197,346     
Total assets                      $   7,946,955            $   7,447,026   
                                                                
LIABILITIES AND SHAREHOLDERS'                               
EQUITY
Revolving credit facility         $   160,000               $   100,000
SIR revolving credit facility         92,000                    -
Senior unsecured debt, net            3,029,652                 2,845,030
Mortgage notes payable, net           869,384                   632,301
Accounts payable and accrued          143,192                   158,272
expenses
Assumed real estate lease             70,587                    70,179
obligations, net
Rent collected in advance             25,883                    37,653
Security deposits                     24,191                    23,779
Due to related persons               31,942                  11,295      
Total liabilities                    4,446,831               3,878,509   
                                                                
Shareholders' equity:
Shareholder's equity
attributable to CommonWealth
REIT:
Preferred shares of
beneficial interest, $0.01
par value:
50,000,000 shares authorized;
Series C preferred shares; 7
1/8% cumulative redeemable
since
February 15, 2011; zero
and 6,000,000 shares issued           -                         145,015
and outstanding,
respectively, aggregate
liquidation preference
$150,000
Series D preferred shares; 6
1/2% cumulative convertible;
15,180,000 shares issued           368,270                   368,270
and outstanding, aggregate
liquidation
preference $379,500
Series E preferred shares; 7
1/4% cumulative redeemable on
or after
May 15, 2016; 11,000,000           265,391                   265,391
shares issued and
outstanding,
aggregate liquidation
preference $275,000
Common shares of beneficial
interest, $0.01 par value:
350,000,000 shares
authorized; 83,804,068 and            838                       837
83,721,736 shares issued
and outstanding,
respectively
Additional paid in capital            3,585,964                 3,614,079
Cumulative net income                 2,539,684                 2,482,321
Cumulative other                      (1,044       )            (4,709      )
comprehensive loss
Cumulative common                     (2,951,618   )            (2,826,030  )
distributions
Cumulative preferred                 (518,215     )           (476,657    )
distributions
Total shareholders' equity
attributable to CommonWealth          3,289,270                 3,568,517
REIT
Noncontrolling interest              210,854                 -           
Total shareholders' equity           3,500,124               3,568,517   
Total liabilities and             $   7,946,955            $   7,447,026   
shareholders' equity
                                                                

A Maryland Real Estate Investment Trust with transferable shares of beneficial
  interest listed on the New York Stock Exchange. No shareholder, Trustee or
     officer is personally liable for any act or obligation of the Trust.

Contact:

CommonWealth REIT
Timothy A. Bonang, 617-796-8222
Vice President, Investor Relations
or
Carlynn Finn, 617-796-8222
Senior Manager, Investor Relations
www.cwhreit.com
 
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